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Pandemic effects: Do innovation activities of firms suffer from Long COVID?

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  • Trunschke, Markus
  • Peters, Bettina
  • Czarnitzki, Dirk
  • Rammer, Christian

Abstract

The COVID-19 pandemic exogenously hit many economies early 2020. Exploiting treatment heterogeneity, we use a conditional difference-in-differences design to causally identify how COVID-19 impacted firms’ innovation spending in the short and medium term. Based on a representative sample of German firms, we find that firms that were strongly negatively treated by COVID-19 substantially reduced innovation spending not only in the first year of the pandemic (2020) but also in the two subsequent years, indicating ‘Long COVID’ effects on innovation. Firms with higher pre-treatment digital capabilities showed higher innovation resilience during the pandemic. Moreover, COVID-19 also led to a decrease in innovation spending in those firms that were positively treated by COVID-19 through an unexpected positive demand shock, presumably to increase production capacity. Overall, these short and medium-term innovation reactions have a substantial repercussion on the macro level. In 2020, innovation expenditure fell by 4.7% due to COVID-19. In 2022, innovation spending was even 5.4% lower compared to the counterfactual scenario without the pandemic.

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  • Trunschke, Markus & Peters, Bettina & Czarnitzki, Dirk & Rammer, Christian, 2024. "Pandemic effects: Do innovation activities of firms suffer from Long COVID?," Research Policy, Elsevier, vol. 53(7).
    • Handle: RePEc:eee:respol:v:53:y:2024:i:7:s0048733324000738
    DOI: 10.1016/j.respol.2024.105024
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    More about this item

    Keywords

    COVID-19; Innovation; Conditional difference-in-differences; Economic crisis; Resilience;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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